Coinbase stock jumps ahead of earnings, boosted by JPMorgan’s rating upgrade

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Trading on Coinbase (COIN) opened up by 6% in the first hour of the day on Feb. 15, boosted by rising token prices and a recent rating upgrade by JPMorgan analysts.

After downgrading the crypto exchange stock in January, JPMorgan analyst Kenneth Worthington changed his tune and revised the stock rating from underweight to neutral, citing the positive impact of Bitcoin (BTC) exchange-traded funds (ETFs) on crypto markets. Worthington reportedly wrote to clients on Feb. 15:

“Given the acceleration in recent days of flows into Bitcoin ETFs and the significant price appreciation of Bitcoin and now Ethereum, we are returning to a Neutral rating on Coinbase as we see the higher cryptocurrency prices not only sustaining, but improving, activity levels and Coinbase’s earnings power as we look to 1Q24.”

Bitcoin ETFs amassed over $10 billion in assets under management in their first month of trading, exceeding most analysts’ predictions with solid demand for the crypto investment vehicle. Coinbase’s custody arm has partnered with a majority of asset managers that launched Bitcoin ETFs in January. These products are anticipated to yield between $25 million and $30 million in fees for the company.

On the negative side, the exchange may not be profitable this year. According to an analysis from InvestingPro, Coinbase has a negative operating income margin of -55.53%. This profitability ratio measures a company’s profitability after paying its variable costs.

Analysts surveyed by Bloomberg forecast the exchange to record losses of around $16 million in the last quarter of 2023. Some of them, however, are going against the grain. Needham & Company’s John Todaro anticipates Coinbase to post a net income of $103 million, which could push the exchange to profitability for the first time in two years.

Coinbase businesses are also challenged by legal troubles with regulators. The United State Securities and Exchange Commission sued the exchange in June 2023 for allegedly offering unregistered securities.

Nevertheless, investors seem to be looking at the exchange’s long-term prospects. The stock’s one-year price total return is up 131%. InvestingPro notes that COIN is currently trading at a “high Price/Book multiple,” meaning the stock could be overvalued compared to the company’s actual net assets.

JPMorgan’s Worthington maintained the stock target price at $80, well above the $170 trading price at the time of writing.

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